2007 (12) TMI 423 - HC - VAT and Sales Tax

Sales tax exemption in view of entry 43A of the Finance Department Notification dated July 26, 1996 - Held that - In the present case basing upon the IPR, 1996 and the notification of the Finance Department dated July 26, 1996, the petitioner established its industry in village Saura in the district of Khurda, where Hi-Tek also set up its industry, for manufacture of aluminium wire rods and other aluminium products and started its commercial production on June 12, 1998 and Industries Department issued the notification dated February 2, 1999 providing that all priority industries, which are entitled to the incentives under the IPR, 1996, will have exemption for two additional years without any maximum limit. The Director of Industries also issued eligibility certificate for sales tax concession to the petitioner-industry, basing upon which the petitioner-industry was getting sales tax exemption and the eligibility certificate granted by the Industries Department has not been cancelled as yet. Allow this writ petition and quash the assessment orders and first appellate orders in annexures 3A, 3B, 3C, 3D, 3E, and 3F as well as the second appellate order in annexure 3G and declare that the petitioner is entitled to avail the sales tax exemption in accordance with the IPR, 1996.

Issues Involved:
1. Eligibility of the petitioner-industry for sales tax exemption under IPR 1996.
2. Interpretation of the term "priority industry" and its implications for sales tax exemption.
3. Validity of the orders issued by the tax authorities denying sales tax exemption to the petitioner.

Issue-wise Detailed Analysis:

1. Eligibility of the Petitioner-Industry for Sales Tax Exemption under IPR 1996:
The petitioner, M/s. Rishabh Electricals Pvt. Ltd., sought a declaration that it was entitled to sales tax exemption under entry 43A of the Finance Department Notification dated July 26, 1996. The petitioner argued that it had set up its industry in accordance with the incentives provided under the Industrial Policy Resolution, 1996 (IPR 1996) and commenced commercial production on June 12, 1998. The Director of Industries had certified the petitioner as a "priority industry" and issued an eligibility certificate for sales tax concessions. The petitioner contended that the amendments to IPR 1996 extended the period of sales tax exemption by two additional years without any maximum limit for priority industries.

2. Interpretation of the Term "Priority Industry" and Its Implications for Sales Tax Exemption:
The petitioner argued that, as per IPR 1996, a "priority industry" was defined as an industry with a project cost of not less than Rs. 1 crore. The petitioner claimed that it fell within this category and was thus entitled to sales tax exemption up to 200% of its fixed capital investment. The Finance Department, however, argued that priority industries with an investment of Rs. 1 crore and above were treated as medium or large scale industries and were eligible for benefits under entry 43A. The court examined the definition of "fixed capital investment" and the provisions under paragraphs 5.1 and 5.6 of IPR 1996, which stipulated sales tax exemptions for priority industries.

3. Validity of the Orders Issued by the Tax Authorities Denying Sales Tax Exemption to the Petitioner:
The petitioner contended that the tax authorities had initially accepted its eligibility for sales tax exemption but later denied the benefit, leading to a heavy tax demand and subsequent business closure. The court noted that the eligibility certificate issued by the Industries Department had not been cancelled. The court referred to its earlier judgment in Hi-Tek Powercon Pvt. Ltd. v. Asst. Commissioner of Commercial Taxes, Cuttack, which held that all priority industries, irrespective of their scale, were entitled to sales tax exemption under entry 43A.

Conclusion:
The court concluded that the petitioner was indeed a priority industry under IPR 1996 and was eligible for sales tax exemption. The court quashed the assessment orders and appellate orders that denied the exemption and directed that the petitioner be granted sales tax exemption in accordance with IPR 1996. The decision was based on the precedent set in Hi-Tek Powercon Pvt. Ltd. v. Asst. Commissioner of Commercial Taxes, Cuttack, affirming that all priority industries, whether small, medium, or large, were entitled to the benefits under entry 43A.

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